Meet the Median Family

You don’t get more middle class than the median income. That’s the income at which half the country makes more and half make less. Median income is a better reflection of the lives of most people than average income, with which it is often confused. This is because the average income is skewed by the spectacular earnings of those at the very top, which forces it higher. Most people don’t make near the average income, but the median income is right in the middle. 50% of people make more than the median income and 50% make less. You can’t get any nearer to the middle.

So meet the Median family. Mr. and Mrs. Median both work. He earns the median wage of $26,965 and she makes $24,439, so together their household income is $51,404 – the median household income for the United States.

They file a joint income tax return, with the average tax and interest deductions for their income level. They have one child, the average number per household, but he’s in school so they don’t need childcare. After their 6.2 percent Social Security contribution, their 1.45% Medicare contribution and their federal tax of $2,199, their combined take-home pay is $45,273 per year.

Housing costs take a third of the median family’s income.

The Bureau of Labor Statistics measures major expenses for five different income levels, called quintiles, each representing 20% of the population. The Median family is right in the middle of the third quintile – i.e. the middle 20% of households ranked by income. At this level our middle-income household spends 35.2% of their income on housing, 17.9% on transportation, 13.3% on food, 7.8% on healthcare and 8.3% on insurance and pensions. This adds up to 82.5% of the Median family’s take-home pay and amounts to $37,350, leaving only $7,923 for everything else. That’s only $660 per month or $152 per week.

Out of that $7,923 has to come state income tax, property tax, student loan repayments and other education costs, credit card interest, heating, electricity and other utilities, telephone, internet and cable costs, clothing and all the other expenses of normal life, from haircuts to Christmas presents.

If this couple pay the average amount of state and local taxes for their income level they will be down another $4,589 and will bring their discretionary budget down to $3,334 per year. That’s only $278 per month or $64 per week. However they are fortunate that they do not have childcare expenses, which average 7% of income, or in their case another $3,598. Of course, they couldn’t pay both the average local taxes and average childcare expenses because that would leave them owing $264 each year, with nothing to spend on living costs. They clearly have very little room for maneuver.

The median annual household income has fallen by 8.4% since January 2000. Between January and February of this year alone it fell by about 1.1% and has not been this low since 1996.

Meanwhile, the big, fixed costs that devour most of the Median family income have been rising. Inflation-adjusted healthcare costs have risen by 122% since 1985 while weekly childcare costs are up 142%. In the 25 largest cities housing costs are up 52% since 2000 while transportation expenses are up 33%. All of these costs continue to rise.

Clearly the Median family are rapidly approaching an impossible situation – if they’re not there already. They are caught in a vice, squeezed between a declining income on one hand, and constantly rising fixed and unavoidable costs on the other. With little or no savings to fall back on, there is no room for error, indulgence or even bad luck. Far from living the middle class dream they were once promised, the Median family lives under constant financial pressure, painfully aware that they are one illness, redundancy, divorce or pregnancy away from disaster.

Half of the people of the United States live like this or worse.

Please note that this article was originally written in 2013, so figures are a little dated. Also, I know I used median incomes with average costs, but far too often median figures aren’t available. I’d like to return to this format examining the life of the Median family in Ireland, the UK, etc.